Arizona Governor Proposes Medicaid Cuts to Stem Budget Crisis

Published May 31, 2016

Facing a $1.4 billion budget deficit next fiscal year, Arizona Gov. Jan Brewer is considering freezing enrollment in the Arizona Health Care Cost Containment System, the state’s Medicaid program.

Brewer’s proposal would eliminate funding for approximately one-fifth of the state’s Medicaid recipients, requiring a six-month phase-out of the program and an enrollment freeze for new members. The plan would remove up to 280,000 people from the state’s Medicaid rolls.

“The growth in Arizona Medicaid spending is a key driver of our state’s current budget crisis. Medicaid’s explosive growth, nearing almost 65 percent over the past four years despite ongoing attempts to stem its increases, is simply unsustainable and threatens to consume the core functions of state government,” the Republican Brewer said in a January 21 press conference.

“I am mindful of the very real impacts these reductions will have, but given our state’s current fiscal situation and the solutions enacted to date, I truly believe this is Arizona’s only option to restore our fiscal stability,” Brewer added.


Medicaid Drives Shortfall

Arizona has been unable to close its budget deficit since the beginning of the recession. The deficit for the current budget year has grown to $825 million, up from $700 million, and the projected shortfall for the next fiscal year has increased by $400 million, to $1.4 billion, adding up to a $2.25 billion deficit.

Byron Schlomach, director of the Goldwater Institute’s Center for Economic Prosperity, says Medicaid spending is driving this debt.

“The state’s Medicaid program is too generous,” said Schlomach. “Arizona is among a half-dozen states that covers adults up to 100 percent of the federal poverty level. By scaling back on the state Medicaid program, Arizona will come in line with the rest of the United States by providing the federally required minimum coverage.”

One of the complaints against Brewer’s plan is that people will lose their health care—which Schlomach says is not the case.

“That is patently untrue. There are plenty of charity organizations that provide health care for people in need, and keep in mind, Medicaid’s outcomes for the population they serve remain very poor,” says Schlomach.


‘A World of Hurt’

The Arizona legislature started the current session with a $1.1 billion budget deficit. Some freezes have kicked in under the State Children’s Health Insurance Program (the  program for low-income children without health insurance), but the Medicaid cuts won’t begin until July. This should save the state between $450 million to $550 million, says Schlomach.

“It’s about taming the budget deficit and cutting back on an overly generous program that can’t be sustained,” Schlomach said. “Almost one-fifth of the state’s population is on Medicaid. This is just not sustainable.

“In 2014 a temporary sales tax goes away, and at the same time there will be some very big increased expenses related to ObamaCare,” he added. “Arizonans are going to be in for a world of hurt due to the tax burdens under the new federal health care program.”


‘Chump Change’ So Far

Tom Jenney, Arizona director for Americans for Prosperity, says the state’s battle over Medicaid cuts has focused on small, hot-button issues while ignoring larger eligibility challenges. He notes last October Arizona stopped financing certain transplant operations under the state’s version of Medicaid, which attracted national media attention.

“The Democrats are hollering about death panels, but the reality is that these cuts are very small: about $1.5 million. This is chump change and will result in very small savings,” Jenney explains.

Jenney maintains Brewer’s proposal involves a combination of small tweaks—such as giving people co-pays and charging them for missed appointments, which the state hopes will drive recipients to spend the money more wisely—with larger ones, such as the $541 million that could be saved if Arizona reduces eligibility for the state Medicaid program.

“We have one of the most liberal eligibility requirements in the United States,” Jenney said. “The federal mandate for enrollment in Medicaid is that your income cannot exceed 34 percent of the federal poverty level. Proposition 204—enacted in 2000—said that Arizona would use 100 percent of that level in order to receive health care. As you can guess, the population and costs exploded.”


Tobacco Money Ran Out

Proposition 204 was designed to use money from the major tobacco settlement toward these added Medicaid participants, but the ballot measure said if that money ran out it “shall be supplemented, as necessary, by any other available sources including legislative appropriations and federal monies.”

Jenney notes the tobacco settlement funding fell far short of the needs of the expanded Medicaid population, effectively adding hundreds of millions of dollars in costs for the state.


State Democrats Filed Suit

Brewer’s cuts would take 250,000 to 280,000 people off the Medicaid rolls, which has raised the hackles of Arizona Democrats. A lawsuit over the matter has already been filed.

“When this case is considered by the Arizona Supreme Court, they might tell the Legislature that they can’t cut the populations from the Medicaid rolls,” said Jenney. “This may result in a situation where the legislature must choose between fully funding Medicaid at Proposition 204 levels or getting out of the system altogether.”

Jenney says a chief opponent of the cutbacks has been hospitals and other health care providers, who claim they will lose the reimbursements for more than 250,000 people who are currently eligible under the system. But the costs to the state are simply not sustainable, he says.

“If we continue with this program the way it’s been, then we’ve got to come up with the money from somewhere,” Jenney said.


Kenneth Artz ([email protected]) writes from Dallas, Texas.